Uniform Commercial Code (UCC) filings can impact your trucking company and plans to factor your invoices. A UCC filing tells creditors about a company’s assets that have been listed as collateral for a loan or other transaction. There are different types of UCC filings, but trucking company owners who are considering invoice factoring need to keep these two in mind.
UCC-1 – This is a legal declaration that states the credit has the right to claim a debtor’s personal property if the debtor defaults on a loan. A UCC-1 remains in effect for five years.
UCC-3 – This is a legal declaration that a debtor has satisfied the terms of repayment and the lien is officially removed.
Suppose you take out a loan for a new truck. The bank that loans you the money for the truck files a lien. If you don’t pay the money, your truck gets repossessed. Once you’ve paid off the truck, the lien is lifted, a UCC-3 is filed to remove the lien from your record, and you get a cleared title.
That’s just one example. UCC filings also include invoices, whether it’s what you owe or an invoice that a client hasn’t paid.
There are two types of UCC filings. An All-Asset UCC is also known as a “blanket lien,” which means everything of value is collateral. If the debt isn’t repaid, the financial institution could take partial ownership of your business, your trucks, etc. There are also Collateral Specific UCC filings that state exactly what the collateral is, such as a truck loan’s collateral is the truck.
That’s what a UCC filing is. How does it affect your ability to factor your invoices?
Understanding the Role of UCC Filings in Freight Factoring
Freight factoring is essential to business owners who want to get paid quickly. When you factor your trucking invoices, you submit your bill of lading before or after a delivery is completed and request payment. The factor pays you the advance, after taking out the agreed upon fees, and chases down payment from your client.
What happens if your client doesn’t pay? It depends on the type of factoring arrangement. If you have a recourse agreement, you’re responsible for repaying the amount of money you were advanced. If your client owes you $10,000 and you were advanced 90% ($9,000), you’d have to repay that $9,000.
There are also non-recourse agreements. This is ideal as you’re not on the hook if your client fails to pay. The freight factoring company accepts the loss, usually selling it to a debt collector. There are also hybrid arrangements where you cover part of the loss and the freight factoring company covers the rest. Make sure you understand exactly what is
A factoring company uses UCC filings when one of your clients fails to pay an invoice or you fail to pay back the money that was advanced to you. If you have a non-recourse arrangement, it’s very unlikely that a UCC filing will affect you at all.
Why Are UCC Filings a Problem?
Generally, the more All-Asset UCC filings you have, the more it can affect your credit. If there are too many liens in your name, it can make it harder to get credit, but a UCC filing for freight factoring is less alarming that a dozen UCC filings for loans. It works the same as an individual with too many credit cards. It impacts their credit score, which can make it harder to get other loans, though not impossible.
Stay on top of the liens that are out there. While a company should file a UCC-3 when you’ve paid your obligation. Some don’t bother. They know the record will be removed in five years, so they don’t bother.
Every few months, you should search your state department’s website, your business name, and UCC filing to see what’s out there. If there are liens that should have been removed, you should request that the UCC-3 be filed ASAP. Do this and UCC liens are unlikely to affect you much. You could also look into filing a UCC-5 correction statement to note when information is not correct.
How does a search work? Every state has a website for UCC filing information. A general search can be used to pull up uncertified UCC lien records. Enter your trucking company’s name and see what’s in there for information. You may also have the option of paying a small fee to get a detailed report.
Double Freight Brokering
Double freight brokering is an act where a carrier accepts a load from one broker but turns around and re-sells it to a different broker without first notifying the broker or shipper. Ultimately, the perpetrator takes a load for a higher rate and pays less, thus pocketing the difference, or pocketing the entire payment and disappearing.
Take Steps to Protect Your Company
Before you enter into a freight factoring agreement, ask what type of UCC arrangement is used. Avoid blanket UCC liens when possible.
Also, learn when they will file the UCC lien. Some file it at the beginning of the application process, while others wait until you’ve signed the contract. If they do it in the beginning and you opt to choose another company, make sure they cancel the UCC lien. If they don’t, you could end up being denied by other factoring companies.
Before you sign a freight factoring agreement, check the rules on whether you have to factor every invoice or if you can pick and choose. If you have a client worked with for decades, would you want to be forced to factor that client’s invoices?
Is factoring the only service that will benefit your company? At Saint John Capital, we offer a range of other services to help you manage and run your company efficiently and wisely. Use our find jobs board with millions of available jobs that help you optimize your driver’s routes, ensuring they have drops that make sense, save time, and bring in the highest amount of money.
Our track load information makes it easy to see where your drivers are and calculate how long it will take for them to arrive. Your clients will love having accurate estimates. Plus, you can alert drivers if there is another job for them once they’ve dropped it off or if there are weather issues that may slow them down or require them to take a detour.
Everyone wants to save money. Saint John Capital has a fuel savings debit card that helps you save money on every fill-up. You can get payments sent to your debit card the same day you drop off a load at your client’s store, warehouse, or plant.
Saint John Capital can help you better understand what UCC policies are followed when you factor your invoices. We also offer free business credit checks, so you could look yourself up and make sure nothing unexpected is in your file. Reach us online or by phone to get answers to your questions about UCC filings and how they apply to freight factoring arrangements.